Rules of the Game: Voracious Food-Makers

With the Heinz (HNZ) acquisition in the works, is anticipation building for other packaged-food deals?

The processed-food space has a long history of mergers and acquisitions. Just this past November, ConAgra (CAG) bought private-label food maker Ralcorp for $5 billion -- a deal that followed ConAgra's purchases of Chef Boyardee, Marie Callender's and Banquet frozen meals. ConAgra's portfolio of brands also includes Reddi Whip, Hunt's, Healthy Choice and Swiss Miss.

Shares of ConAgra are trading at multiyear highs. Revenue growth has tended to be solid, if unspectacular, over the past several quarters. When the company reports full-year 2013 results, it's expected to earn $2.12 per share, which would be a 15% year-over-year gain. Next year, EPS is expected to grow another 12% to $2.38.

This is a large-cap name with market capitalization of nearly $14 billion, and it has excellent liquidity, moving more than 4 million shares per day. Despite being a large, mature company, ConAgra has been acting like a growth stock lately. Investors worried about buying too high could always wait for a moving-average pullback before entering.

One mid-cap that I've previously written about is Hain Celestial (HAIN). The company makes Celestial Seasonings tea, Arrowhead Mills flour and baking mixes, Rice Dream and Soy Dream beverages and many other natural and organic brands.

As interest in healthy eating continues to grow, so too have Hain's earnings and sales. The company has shown strong double-digit growth on the top and bottom lines for every quarter of the past two years. With its market cap of $2.89 billion, the firm could conceivably be an acquisition target; in fact, Heinz invested in the company in 1999, but sold its interest a few years later.

Nonetheless, Hain has been playing the role of the acquirer, growing by snapping up smaller natural-food makers. When it reported second-quarter results earlier this month, Hain noted that recent U.K.-based acquisitions -- Sun-Pat peanut butter and Hartley's jam -- helped boost revenue.

Hain is expected to earn $2.45 per share this year, up 32% from 2012. Next year, income is seen growing another 17%, to $2.86 per share.

McCormick (MKC) is another maker of packaged foods that's been in acquisition mode. The company is well-known to U.S. home cooks for its spices, herbs and sauces. But, in the past few years, many of its purchases have had an international flavor. Acquisitions included Canada's Billy Bee honey; Asian food specialist Epicurean (the name was later changed to Simply Asia); and Dessert Products, maker of dessert toppings sold in France and Belgium.

This year, analysts see the company earning $3.21 per share. That would mark a gain of 6% vs. 2012. Next year, McCormick is expected to earn $3.57, which would be another 11% increase.

The weekly chart looks a bit choppy, but the stock has a beta of just 0.59, so it's not unusually volatile. McCormick is one of those stocks that traders zero in on periodically, but an investor with a somewhat longer time horizon could also consider it. It can occasionally show some big intraweek price swings, but the reliable earnings growth has spurred fairly orderly price appreciation in recent years.

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